Tourism

Overview

The Island’s tourism sector continues to provide a positive reading in a context of continuing economic difficulties, locally and in its main markets. The most recent available information on the industry shows occupancy rates in Metropolitan San Juan area hotels of 100% in early December, and close to that figure for hotels in the rest of the Island.

Registrations for 2012 had been lower by 8% from 2011, in spite of the significant improvement of occupancy rates during the winter 2012 season, as observed previously. Nonetheless, when compared to 2010, registrations in 2012 grew significantly, by about 20%. It is important to note that most of the registrations were from non-residents, accounting for more than 60% of the registrations, while local residents account for the remaining 40%. Locals are the main users of “paradores”, a type of accommodation similar to inns, located outside the Metropolitan Area.

The Luxury Hotel Segment

A new niche or segment is being rapidly developed in Puerto Rico, luxury hotels catering to a very high income clientele. Properties such as the W Vieques Retreat and Spa in Vieques; the Royal Isabela in Isabela; the St. Regis Bahia Beach in Rio Grande; the recently inaugurated, the Dorado Beach Ritz Carlton Reserve in Dorado; and the soon to open Vanderbilt Hotel in the Condado area, are all part of this group of new hotels catering to a very discriminating clientele. Some of the main characteristics that define this group of hotel properties are the fact that they offer amenities such as extra large bedrooms, private pools, spas and concierge services, among others. The number of employees per guest room is also much higher in order to provide better service.

The essence of Royal Isabela is golf, and it is already considered as one of the best golf courses in the world by golf analysts. Recently, during the month of October, it inaugurated a 20-room “casitas” lodge, and member’s only facilities including tennis courts, pool area, beach house, and “La Casa”, which is the resort’s nerve center. This is a project targeting the luxury market, thus each unit or “casita” has an area of 1,500 square feet, luxury decorations, private pool and access to a full concierge team. Other components will be added in the future as the project develops.

The Ritz Carlton Reserve in Dorado inaugurated on December 12, 2012, is an ultra-luxury product, being the second Ritz Carlton Reserve in the world, the other one being the Phulay Bay resort in Thailand, an exclusive 54-villa project. Being part of the Reserve brand of the Ritz Carlton flag opens up immense possibilities for accessing the luxury market. The resort builds upon a long and distinguished history attached to the Dorado name. It will offer a golf course designed by famous designer Robert Trent Jones, and a botanical spa. The investment in this project was $414 million, and room rates start at $1,200 per night.

Changes in the Local Airline Industry

The operation of the Luis Muñoz Marín Airport will soon be privatized through a 40-year concession agreement with Aerostar Airport Holdings LLC (AAH). The FAA (Federal Aviation Administration) is reviewing the agreement and its approval is expected in January, 2013. Aerostar expects to significantly increase the number of passengers to the Island, and add new routes, the first being a Mexico City to San Juan flight. Other markets that this company plans to open up are Europe and South America.

In terms of airline presence, Southwest Airlines recently acquired AirTran Airways and is evaluating new routes to and from the Island. Part of the company’s strategy is to increase the frequency of some already existing flights from Puerto Rico. AirTran flies to five mainland cities from Puerto Rico with 13 daily departures from the Luis Muñoz Marin Airport. Air Turks and Caicos, the national airline of Turks and Caicos is looking forward to becoming the Caribbean’s first PanCaribbean airline, starting in 2013. Puerto Rico, the largest market in the island Caribbean, is a key component of the airline’s strategy. The airline currently has 50 daily flights out of Turks and Caicos plus the Dominican Republic, Haiti, Jamaica and the Bahamas.

Performance of the Casino Market in Puerto Rico

The local casino industry continues to battle the illegal operation of slot machines outside casinos. This and the fact that people have less discretionary income available to play, given the state of the economy during the last few years, has posed a major problem for the industry. The Office of the Commissioner of Financial Institutions (known as OCIF in Spanish) adopted a Resolution early this year in order to decommission and remove illegal slot machines in the Island. There is an estimated 25,000 illegal slot machines operating on the Island, while the legal slots in the casinos total no more than 6,700. Raids on establishments holding illegal slots have taken place and public awareness campaigns are in place.

In Puerto Rico there are a total of 19 casinos in different locations around the Island. Two major ones closed during 2012, the casino at El Conquistador Resort in Fajardo, and the casino of the Gran Meliá Hotel in Rio Grande. Casino facilities in Puerto Rico have an average size of 11,400 square feet and together offer more than 216,000 square feet of casino space.

The development of a casino based tourism project for the Roosevelt Roads property is on hold. It called for a 200,000 sq. ft. casino, a 2,000 room hotel and other facilities. The recent opening a Hard Rock Café hotel in the Dominican Republic with 1,800 rooms and a 100,000 sq. ft. casino, as well as the planned Baja Mar resort in the Bahamas, of similar proportions have made the proposed Roosevelt Roads development much less viable, notwithstanding the advantages that the site possesses. Engineer María Blázquez has been appointed as Executive Director of the Roosevelt Roads Authority.

Outlook

The future growth of the local tourism industry depends on a number of factors, including the condition of the U.S. economy, competition from other regional destinations and cost issues, particularly energy and labor. One major influence on the future of tourism in Puerto Rico is the fact that the Tourism Development Fund (TDF), the Island’s main mechanism for the funding of tourism projects, has little if any margin for financing new projects. This situation could imply the need for refurbishing the Fund, unlikely given the present and projected fiscal situation.

On the positive side, some aspects that could boost the performance of the local tourism industry are the following:

A New York investment group is posed to buy the 290-room Normandie Hotel by the end of the present year or beginning of 2013. Possible improvements to the facility include the expansion of the hotel’s parking structure.

The construction of the Mall of San Juan should attract more tourists, as this will be the first upscale mall of the Island with tenants such as Nordstrom and Saks Fifth Avenue. Its location just across the Luis Muñoz Marin International Airports makes it attractive for the tourist trade. Its expected opening date is in 2014 and will feature a hotel and, eventually, residential and office spaces.

Puerto Rico as a site of medical tourism offers a significant potential for growth. According to an important organization of the industry, Patients Beyond Borders (PBB), the Island is one of the top four preferred locations for this kind of tourism, given the availability of infrastructure and the medical expertise necessary for complex medical procedures. The Medical Tourism Association and the Puerto Rico government have formed a partnership to help grow the medical tourism sector. Legislation offering incentives to the industry is in place

Recently five of the local island beaches have been granted the blue flag designation. The five beaches with this designation are: Punta Salinas in Toa Baja, La Monserrate in Luquillo, Boquerón in Cabo Rojo, Seven Seas in Fajardo and Sun Bay in Vieques. The blue flag program currently has 46 countries and more than 3,800 beaches with the designation.

All in all, 2012 ended with hopeful signs of renewed tourism industry growth. Should the Puerto Rico Hotel and Tourism Association’s idea of creating a Destination Marketing Organization (DMO) be adopted by the new Administration, the future could be even brighter.

1. The blue flag program is a voluntary eco-label awarded to 3,850 beaches and marinas in 46 countries across Europe, South Africa, Morocco, Tunisia, New Zealand, Brazil, Canada and the Caribbean. It works towards sustainable development of beaches and marinas through strict criteria dealing with Water Quality, Environmental Education and Information, Environmental Management, and Safety and Other Services.